Financial Regulation and Crime

Instead of reducing the analysis of financial misdemeanors to a matter of regulatory scope, it may be more worthwhile to focus on the enforcement of existing legislation on licensed financial activities especially by a less-lethargic Ministry of Finance

By R. Chand

Following the blowup of a financial scam and the crackdown on unlicensed investment activities by the regulatory authorities concerned, namely the Bank of Mauritius and the Financial Services Commission, an interesting exchange of crossfire has taken place in the media, involving the Ministry of Finance, and the current and former BOM Governors.

The present BOM Governor was quick to direct his diagnosis towards legal and regulatory gaps, especially between the BOM and the FSC. The Ministry of Finance, for its part, felt it was premature to pin the blame on legal shortcomings, while the rumblings from government appeared instead to reflect dissatisfaction with the FSC’s role, rather than the BOM. A former BOM Governor authoritatively supported the notion of regulatory gaps, while another shot it down to pieces without any equivocation.

While the public is anxious to understand the reasons for these shocking scandals, it is despairing to watch the spectacle of our financial high priests taking potshots at each other and quibbling about issues that have more to do with protecting their lower backs. It is always right to strengthen regulation, but little or nothing is being said about the enforcement of existing legislation, and how to better educate the public on dealing with unlicensed entities.

To foster the layman’s confidence and trust in licensed institutions, advising for caution in a press notice is simply not enough. The regulatory and other authorities must visibly demonstrate their enforcement powers on licensed institutions. Unfortunately, the enforcement record is this respect is pretty dismal.

The MCB scandal was the greatest financial rip-off that Mauritius has ever known, badly damaging the country’s reputation. Yet, a decade later, we still have not reached the bottom of it, and probably never will. The financial regulators passed the buck to the police, the anti corruption agency, and the prosecution authorities, and went on vacation. The least that was expected in the wake of this huge scandal was for sanctions to be taken by the BOM to hold top bank management accountable for the failure of the MCB’s internal controls. For the extradition of the main protagonist from the UK, one is left to pray devoutly for some form of divine or extraterrestial intervention.

There is no public benefit in taking advantage of the latest financial shenanigans to push specific agendas and settle individual scores. The Whitedot hustle is not dissimilar to the internet scams that populate the internet, whether of Nigerian or other origin, or akin to deceitful schemes that are revealed periodically in the local press. Greed and stupidity cannot be regulated in every aspect of life, and financial activities are no exception. While many of the victims are honest but financially illiterate persons lured by swindlers, tax evaders and shady characters looking to stash away ill-gotten gains also abound.

The size of the underground economy in Mauritius is far greater than thought. The exposed scheme included the setting up of car rental companies and pizzerias, which apparently had more to do with money laundering than boosting tourism or food consumption. Our anti money laundering legislation has flashing sharp teeth, but, again, getting them to really bite would provide an immediate and effective response to addressing financial crime.

The division of regulatory responsibilities between the BOM and the FSC is straightforward. The BOM is meant to license and oversee banks and other deposit taking institutions, while the FSC handles all other financial activities. Instead of reducing the analysis of financial misdemeanors to a matter of regulatory scope, it may be more worthwhile to focus on the enforcement of existing legislation on licensed financial activities especially by a less-lethargic Ministry of Finance (MOF), and on better educating the public about the risks and perils of dealing with unlicensed entities.

The MOF should be taking the issue of black money more seriously and could be more pro-active (commissioning some studies for e.g) in dispelling the view that “Mauritius is a conduit through which Indians send and bring back black money” (The Economist, March 23rd 2013 ).